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To all my readers this
week:
I appreciate all the questions you send each week. Now the deadline
to file your 2000 tax return is less than a week away, and you may
not have the answer you need. If you haven't heard back from me
and you really need to know, check out the full Bankrate
Taxes site, especially the Tax Toolbox. What you need may be
there. If not, consider filing for an extension of time to file
your federal and state returns so you'll have time to get the tax
answer you need. But remember, if you do get an extension, be sure
to pay what you might owe to avoid interest and penalties.
Second-home capital gains,
losses and deductions
Dear Tax Talk:
Last year, I sold a second home, which was a 37-foot sailboat. The
original cost was $45,000. I sold it for $38,000.
The mortgage interest has been taken as a deduction
for several years. Is the money I spent to prepare the boat for
sale deductible? For example, advertising cost, broker fees, fix-up
costs, slip rental, etc. If it is deductible, what form do I use?
Thank you,
Donna
Dear Donna:
I'm sorry to tell you that the sale of the boat at a loss does not
benefit you for tax purposes. Even though you considered the property
as a second home, the loss is considered personal and not deductible.
Therefore none of the expenses nor the sale is reported for tax
purposes. Conversely, if you sold the boat at a gain (not like that
would happen, but let's say it did for purposes of illustrating
this point), you would have to pay tax on the gain.
Everyone should remember that the sale of a
second home at a gain is taxable, and the sale at a loss is not
deductible. You can continue to deduct the boat loan interest through
the date of sale.
Home sale exclusions for newlyweds
Dear Tax Talk:
Over the last year, 1) my fiancée sold her condo (for a small
gain) and moved in with me in January 2000; 2) we got married in
May 2000; 3) we purchased a new home in January 2001 and 4) we are
just now selling my previous home for a large gain (expected to
close in May 2001).
My question concerns the exclusion allowed on
the sale of a residence and how this works when two individuals
each own a home and meet the exclusion requirements as individuals,
but not as a married couple.
Since we sold our homes in separate years and
16 months apart, would we have to file as "married filing separately"
for the tax years 2000 and 2001 in order to take advantage of the
exclusions on both homes? I am not happy with this option, as the
tax rates for "married filing separately" appear to be
higher that those for married-filing jointly. What other options
are available?
Thanks,
Dave
Dear Dave:
You certainly have had a lot going on in the last year. Luckily,
the tax law was liberally rewritten a few years ago to fairly treat
newlyweds that engage in the sale of two separate residences. Under
prior law, you would have not been so fairly treated.
The general rule is that a married couple can't
use the home-sale exclusion more than once every two years except
for health or employment related moves. Since you were married in
May 2000, you are considered married for the entire year. However,
under the liberalized rules you can each choose to treat up to $250,000
as exempt from tax provided you meet the two-year ownership-and-use
test that is otherwise applicable to home sales. In order to benefit
from this exclusion, you do not have to file separate returns, which
as you point out would penalize you on the tax rates. In fact, if
the gain is less than $250,000 on each residence you do not have
to report the sale on your return.
-- Posted: April 10, 2001
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